Select lesson in how shareholder democracy is squashed by 'big guys'

Peter Carey

'The reality of annual general meetings and director elections is less than edifying.'

Late in 2013, in a meeting room in Melbourne's Sofitel Hotel, a group of men in suits got up on stage and put on a show.

As entertainment, there wasn't much to recommend it. The lead actor - the chairman of a company called Select Harvests - read from a dull script, a carefully manicured presentation designed to give comfort.

But there were a few moments of unscripted drama when the show - the colourfully titled Annual General Meeting of Select Harvests Ltd - moved on to the audience participation phase, and what they call an ''election'' for the appointment of directors to the board.

Director elections are aimed, ostensibly, at giving shareholders in companies such as Select Harvests a stab at holding directors to account for their actions, and a say in who runs the show. They are, in theory, a central tenet of shareholder democracy and corporate governance.

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But the reality of annual general meetings and director elections is less than edifying. For almost any company with its shares listed on the stock exchange - from smaller outfits such as Select Harvests up to the big guys such as Wesfarmers, BHP and the banks - the AGM has become little more than a scripted information session, a stage show.

The main act - the election of directors - is a largely predetermined set piece controlled by a few highly paid men (and occasionally women) who command enough votes to ensure they get their way. Small shareholders, almost without exception, are rendered powerless.

Australia's laughable pretence at a system of shareholder democracy, harboured over many decades by both Labor and Coalition governments, was on display again during the recent season of AGMs.

Defenders of the existing system should ask themselves this: has there been a single election of a director of any big public company in recent times that wasn't decided by a few representatives of big financial institutions and the incumbent chairman?

Perhaps there have been one or two. ''Situation normal'' is certainly what played out at the Select Harvests AGM where - against my better judgment and in the face of what I already knew about this farcical caper - I put myself forward as a candidate for election as an independent director.

Select Harvests is a mid-sized public company, valued at about $240 million. Among various activities, it grows almonds in country Victoria, New South Wales and South Australia. I have been a shareholder for 15 years and have taken a keen interest in the company's affairs.

Despite what I believed were my strong credentials - I am a senior academic who specialises in corporate governance, and have detailed knowledge of Select Harvests - I never had a chance of being elected because I did not have the backing of the chairman and the big institutional shareholders.

It was my second tilt at the board in two years. I was standing, not just to offer my expertise to the company, but because I wanted to send a message on behalf of all shareholders about accountability. A few years back, the board of Select Harvests made some ill-judged investment decisions that resulted in two years of profits being virtually wiped out.

Two of the directors from that unfortunate period are still on the board and were backed by the chairman for re-election. This effectively guaranteed their success because - in a measure of how Australian business so often operates like a boys' club - big institutional shareholders tend to side with the chairman. With Select Harvests, the chairman informed me in advance that I would fail because the fund managers who control the mostshares were supporting him.

After its recent misadventures, Select Harvests now appears to be in recovery. Its share price is up (though nowhere near what it was) and it is possible that the longer-serving directors who were there during the bad times have performed admirably during the past year. But I believe their reappointment sends the wrong signal on accountability, and that this has implications for the culture of the organisation.

The system that is supposed to ensure directors can be held to account by shareholders is a joke. Incumbent boards are almost impossible to dislodge, irrespective of their performance. The worst poor-performing directors have to fear is perhaps some momentary discomfort from difficult questions at the AGM.

At the Select Harvests AGM, after I gave a presentation attacking the ''closed shop'' of director elections and the damage previously done to the company, I received enthusiastic applause. If the election had been decided on a show of hands then, I would be on the board. But of course, my fate had already been sealed by the big guys, and I didn't get close.

There are ways to give the little guy more power. In Germany, for example, public companies by law must have an employee representative on the board. Perhaps we could extend the concept in Australia by having a mandatory ''small shareholders' representative'' on all public company boards, with the biggest shareholders excluded from voting for that position.

Peter Carey is a professor of accounting at Deakin University and a member of the university's Centre for Sustainable and Responsible Organisations.